fbpx
HomeNewsPepsiCo CEO downplays concerns over GLP-1 drugs' impact on food industry as...

PepsiCo CEO downplays concerns over GLP-1 drugs’ impact on food industry as company raises earnings projection

IHCL

IHCL reports 12% YoY growth in net profit, reaching INR 248 Cr in Q1

0
Indian Hotels Company Ltd (IHCL), th͏͏͏e ͏o͏perato͏͏͏r of Taj hotels, ha͏s recorde͏d͏ a 12% ͏y͏͏ear-͏͏o͏͏n-year i͏͏ncrea͏s͏͏e͏ ͏in ͏co͏nso͏l͏idated͏ net͏ pr͏͏ofit͏ for Q1͏͏͏ FY͏25, dri͏ven...
BIRA 91 Taproom

BIRA 91 brings new vibes to Delhi with second taproom at Pacific Mall, Tagore...

0
Building on t͏he ͏succe͏s͏s of ͏i͏ts ͏fiv͏e͏ existing outl͏et͏s nation͏wide͏, ͏BIRA 91 h͏as͏ pr͏oudly͏͏ opened ͏͏͏its sec͏on͏d͏ Taproom in Delhi.͏͏͏ ͏Sit͏uated in the vibr͏ant͏...

PepsiCo CEO Ramon Laguarta brushed off growing worries about the potential effects of GLP-1 drugs on the food industry during discussions on October 10th.

This coincides with the company revising its annual earnings projection upwards, even amidst declining volumes in the third quarter.

The CEO characterized the influence of appetite-suppressing drugs as “insignificant” in relation to PepsiCo’s operations during a discussion with analysts and investors after the release of the company’s third-quarter results.

He said, “Overall, if you take global consumption, there are obviously a lot of question marks with regards to the obesity drugs when it comes to medical testing or scalability of the usage of this or what is the impact really on consumer choices. So, a lot of question marks.”

GLP-1s like semaglutide, available under brand names such as Novo Nordisk’s Ozempic and Eli Lilly’s Mounjaro, were originally designed for the treatment of type 2 diabetes but are now being prescribed for weight loss.

Laguarta talked about how PepsiCo has observed “enduring favorable trends” that outweigh any potential impact from GLP-1 drugs, yet the company, which owns brands like Lays and Quaker Oats, maintains a “robust strategy” for “portfolio transformation” in case these trends shift.

In the wake of the earnings announcement, the company emphasized portion-control packaging, sugar-free beverages, and wholesome food options in their official statements.

“Everything we’ve been doing for the last five, six years when it comes to reducing sodium, reducing fat, reducing sugar, reducing the portions of our products, adding some new cooking methods to our snacks, those are all very positive trends that will help us pivot the portfolio if needed in the future. We’ll continue to do it. Obviously, it’s one of our key strategic pillars,” the CEO stated.

He added, “Our portfolio strategy, we think, is very solid when it comes to a potential protection against some of these future developments five, ten years from now.”

The increasing utilization of GLP-1 drugs in the United States for appetite suppression and subsequent weight loss is raising concerns among investors in the food and beverage industry.

As stated by Trevor Stirling, a managing director at AllianceBernstein and an analyst specializing in the beverage alcohol market for the US bank, the monthly administration of doses for Ozempic, Wegovy, and a third brand, Mounjaro, has reached approximately 11 million and is on the rise.

He further notes that this level of treatment suggests that roughly 2.4 million individuals, constituting slightly less than 1% of American adults aged 18 and over, are presently utilizing these medications.

The stock prices of certain food and beverage companies listed in the United States did experience a decline last week following statements from Walmart. Walmart mentioned that it had noticed an influence on the food shopping behaviors of individuals using medications like Ozempic and Wegovy.

“We definitely do see a slight change compared to the total population, we do see a slight pullback in [the] overall basket,” John Furner, the CEP of Walmart’s US business, told Bloomberg. “Just less units, slightly less calories.”

Over the past few days, high-ranking executives from American food producers have been questioned about the potential impact of the increasing demand for these drugs on their businesses, both during earnings calls and in media interviews. Their response has been that, at present, they are maintaining a vigilant stance and would adjust their product strategies as necessary.

“If we end up seeing changes in consumer eating patterns – let’s say they go to smaller portions – then we evolve the innovations and we design smaller portions. If they switch to different types of nutrients, we evolve the innovation, we switch to different types of nutrients. If they change the kind of pack sizes they snack on, we’ll change that,” Conagra Brands CEO Sean Connolly said when the company reported its first-quarter results last week. “So this is the kind of stuff that will happen over five, ten, 15 years, not over the next six months.”

On October 10th, PepsiCo saw a premarket trading surge of more than 2% following its announcement of earnings at $2.25 per share on an adjusted basis, surpassing the projected $2.15 and exceeding analysts’ expectations.

The company’s favorable outcomes were propelled by ongoing price hikes, despite a 2.5% decline in organic volume for the quarter. Within its snacks portfolio, volume slumped by 1.5%, and its Latin America convenient foods business experienced a 5% decrease in volume. It’s worth noting that the company does not disclose the volume results for its individual brands.

When inquired about overall volumes and whether consumers are showing a preference for smaller packaging, Laguarta outlined two significant factors the company is actively striving to optimize.

“One is consumer interaction with our brands. And the proxy we’re using for that is units or specific purchasing act. And then the other one is obviously margin for the overall business. And those are the two variables that we’re maximising. In both cases, units are growing much faster than volume.

“You mentioned consumers moving to smaller packs. We’re also, in a way, facilitating that through our pricing and mix strategy. Then we’re obviously optimising margin that, as you saw, it was a good improvement in our margin across the company.”

Nevertheless, PepsiCo raised its forecast core earnings per share growth to 13% at constant currencies this fiscal year, up from a prior estimate of 12%. Its organic revenue growth forecast remains unchanged at 10%.

The group also gave unusually early guidance for its fiscal 2024 – organic revenue growth of 4-6% and EPS growth in high single digits.

Lauren Lieberman, a Barclays analyst covering PepsiCo, wrote that a “beat and raise” was unexpected, “let alone the very early and constructive commentary on 2024 expectations”.

She said, “To us, results in aggregate speak to the increasing balance in the business model across US and non-US markets, and we see this as also supporting the company’s confidence in discussing the high-end of the long-term algorithm for next year.”

PepsiCo’s net revenue rose 8.9% year-on-year to $23.45bn for the three-month period, while operating profit jumped to $4.02bn.

The Frito-Lay North America unit reported a 7% jump in organic revenue to $5.95bn increase while volumes fell marginally. Quaker Foods North America increased to $747m.

Meanwhile, Latin America revenue – which includes food and beverages – was up 21% to $3.05bn and Europe up 2% to $3.7bn.

Latest articles

Teriyaki Madness expands to Lynchburg with new franchise agreement

Amer͏ican re͏staurant chain Teriyaki Madness (TMAD) has ink͏ed a franchise agreement to debut its...

Pernod Ricard’s Brancott Estate teams up with Made for Drink to elevate wine pairings with new crisp varieties

Pernod Ricard's Brancott Estate has teamed up with Made for Drink to͏ craft two...

Birds Eye enters UK chips market with ‘Crispy Chips’

Birds Eye is making its debut in the chips mark͏et with ͏the laun͏ch of...

Freja launches innovative bone broth shake line for convenient, on-the-go nutrition

Freja, a ͏r͏eno͏wn͏ed͏ bone broth bra͏͏nd, has un͏vei͏led its la͏test͏ in͏n͏ovati͏on:͏ Bone Broth Shakes.͏...

Related Articles

How Sugar in your Breakfast can harm your Health and Productivity?

Breakfast! The most important meal of the day. But hold on a minute; before...

Mondelēz unveils $5 Million Biscuit and Baked Snacks Innovation lab in Singapore

Mondelēz has unveiled its new $5 million Regional Biscuit and Baked Snacks Lab and...

Discover the ultimate after-school snacks that will leave your kids begging for more!

Attention, parents and snack enthusiasts! Are you tired of the same old after-school snack...
× Drop a, Hi?